Limited default might clear way for Greek bond swap

Reuters
June 8, 2011

After initially resisting the idea of any Greek debt restructuring, the European Central Bank is warming to the idea of having private investors share the burden of rescuing Greece, potentially clearing the way for a debt swap.

Although the ECB still opposes a cut in the principal of the debt, which would mean full default, it is now believed to be considering a scenario in which credit rating agencies would declare Greece in limited or "selective" default -- minimizing the impact on financial markets and its own balance sheet.

If the central bank decides to endorse this scenario, it will remove a major obstacle to agreement among international creditors on a second bailout of Greece.

In a letter written on Monday, Germany's Finance Minister Wolfgang Schaeuble proposed to the ECB, the International Monetary Fund and euro zone peers that holders of Greek bonds swap them for longer-dated bonds, giving Athens seven more years to work through its 340 billion euro debt pile.

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